11 Steps To Manage Your Credit Score

Credit is one thing I wish I could yell from the roof tops because it has negatively impacted SO MANY people from getting into their dream home or getting into a home at all. AHHHH! I know it's not a fun thing to think about or work on but it's SUPER IMPORTANT! In terms of real estate, it can effect whether you qualify for a conventional loan or FHA loan, your interest rate, your refi interest rate, etc. equating to potentially thousands of dollars!

Credit-scoring models are like snowflakes; there are a lot of them and no two are exactly alike. FICO alone sells 65 versions. Due to the variation, a lender might not use the same credit scores you obtain. Therefore, be aware of the range of your scores and follow their trend over time. John Ulzheimer, a credit expert at the website Credit Sesame and formerly of FICO and Equifax, recommends these other points when managing your score:

1. Pay your bills on time. Payment activity accounts for 35% of a FICO score and 40% of a VantageScore. At least pay the minimum each month rather than falling behind. 2. Check your credit reports. Request one free credit report from a different reporting agency every four months through AnnualCreditReport.com. “Hard pull” credit inquiries—from a potential lender and others with permission from you—can lower your scores slightly, but there’s no penalty for checking yourself. That’s called a “soft pull.” Credit-scoring companies consider multiple inquiries by lenders within 45 days as only one inquiry because the timing suggests that you’re shopping for interest rates for one loan, not multiple loans. 3. Don’t apply for multiple credit cards at once. Unlike applying for a mortgage, auto, or student loan, applying for several credit cards generates multiple “hard pulls.” Instead, carefully read prospective cards’ terms and conditions and apply for just one. 4. Don’t cancel unused cards (unless they carry an annual fee). Stick the card in a drawer instead. Part of your score depends on the ratio of credit used to total available credit. Eliminating a card reduces your credit line and can raise the ratio, which works against you. 5. Don’t open too many new credit accounts at once. By doing so, you lower the average “age” of your accounts, which can lower your credit score. 6. Keep credit balances relatively low. Maintaining a revolving credit balance under 10% of your total available credit is wise, experts say. A higher ratio indicates an elevated credit risk. 7. Beware of “point-driven” high balances. If you charge everything on your rewards card for the points, switch to cash or a debit card for a couple of months before applying for new credit. Lenders can’t tell from your score whether you zero-out your balances every month. They’ll see your credit score, a snapshot in time, showing that you’re charging a lot relative to your credit limit, which is a negative. 8. Maintain a variety of credit types. Successfully paying an auto loan, a student loan, and credit card bills over the same period shows that you’re able to juggle different types of credit. That accounts for 10% of your score. 9. Get a personal loan to pay off your credit card debit. You can improve your credit score by paying off the score-damaging “revolving” debt of credit cards with the score- benign “installment” debt of a personal loan. The interest rate on the loan is likely to be lower than the credit card interest rates. 10. Pay off debt in collections. It’s always better to have zero balances on collections, but soon you might also see a much higher credit score as a result. The most current versions of VantageScore and FICO credit score ignore collections with a zero balance. 11. Get a secured credit card after a bankruptcy. If you have been through one, start populating your credit report with good credit. Secured credit cards may be an effective way to rebuild your credit. A bankruptcy will have less impact on your score over time as long as you aren’t defaulting on new loans.